Break the Rules for Entrepreneurial Success

Anita Brick: Hi, this is Anita Brick. And welcome to CareerCast at Chicago Booth. To help you advance in your career. Today we're delighted to be speaking with Lloyd Shefsky. He is a consultant coach and advisor to entrepreneurs, family, businesses and public companies controlled by families. He recently retired as Clinical Professor of Entrepreneurship, founder and co-director of the center for Family Enterprises at the Kellogg School of Management.

His lectures are from China to Japan to Canada to Israel on public and private capital funding. Mergers and acquisition and expansion. He has authored numerous articles in books, including Visionaries Are Made Not Warren, our focus today. He's a J.D. from the Law School at the University of Chicago and a B.S. from DePaul, and he's also a CPA. It's so obvious, Lloyd from the book, how grounded you are and how knowledgeable you are. It was a wonderful read. Thank you very much for writing about it.

Lloyd Shefsky: Oh thank you. And that's very kind of you.

Anita Brick: So maybe we start at a very basic in a very concise way. How do you define vision? Because that's kind of the core of everything.

Lloyd Shefsky: Yes it is. Let me start by saying vision is a goal. It's where you see some kind of an opportunity, or maybe a challenge that you think is worth pursuing or solving. And it doesn't mean you necessarily have to do it doesn't even mean that it's easy to do, but it's something that you think is worth doing. And then you get into all kinds of things, your personal and your business situation, your financial backing or ability to get backing, and all the strategies and tactics that go into implementation. But the vision is just that simple thing. It's a goal where there's some opportunity or challenge worth pursuing.

Anita Brick: You know, it was interesting because our focus today is a little bit about breaking the rules. In the book, you talk about people who break the rules a lot in order to grow and even survive. What are the exact MBA students asked? What has been the most curious rule or strategies that you've witnessed and why? Maybe even talk about one that you've seen broken and it had to be broken?

Lloyd Shefsky: Well, first of all, let's understand what these rules are from the standpoint of visionaries. The simplest rule is today's status quo. Whatever exists today is kind of a rule. It's what people are following or doing because they believe they should be, or believed some time ago that they should be building to this. And eventually you get to the point where you realize that rules may be outmoded.

Maybe it was never sound. When you think about people who break rules, you also have to think about who is breaking it. Is it the person who established the rule, their successor, or a competitor? We all know about creative destruction. Creative destruction is the entrepreneurs mantra. What is creative destruction? It's breaking a rule that existed previously. Sometimes you don't have to break the rule.

Sometimes you enhance the rule. Modify the rule I use something, I call it the three hours of family business. Sometimes the three hours are as simple as respect. Look at Bill Wurtz, who established his father to Arthur, but established and implemented the rule that no hockey games would be broadcast on TV. Which was kind of a strange rule, but it was his rule.

It ran the entire duration of. Bill Wirtz is running the Chicago Blackhawks. His son Rocky, comes in immediately after Bill's death and totally eliminates that rule because it was just a bad rule. And so he fixed it.

Anita Brick: Not to interrupt, but something that goes along with that. Actually, another executive MBA student said, what do you think are the personal traits or characteristics that distinguishes someone and makes them a successful entrepreneur when they come from a family business background and want to branch out on their own, or even take what the previous generation has done and bring it forward. What are 2 or 3 traits that you see over and over again?

Lloyd Shefsky: So let me break that into two parts. First, the traits part. I'd like to say that one of the lessons I learned in my first book, Entrepreneurs Are Made Not Boring, is that if you focus too much on the traits and characteristics of entrepreneurs, it becomes something like a recipe book. You know, mix the right characteristics together, put them in the oven and out comes an entrepreneur.

Just doesn't work that way. Having said that, let's now focus on the question you just asked. It's not the entrepreneur alone whose traits and characteristics have to be explored. You also have to explore the guy who's running the family business. If you have a parent who's running a family business and they make it clear that they're open to change, or they're open to the son or daughter doing something new, that makes a big difference.

Anita Brick: There are numerous examples a week, and students asked, when you're handed a vision for an organization, whether it's a small part or the whole organization, how can you change the vision without losing its integrity?

Lloyd Shefsky: Well, the integrity of a vision depends on the nature of the vision. In business, visions are meant to be broken. They're meant to be constructively recreated. There are other visions that have more to do with the culture or the principles that guide the business, and those are more enduring. They last, sometimes forever. You know, a long term vision that's worth noting is Ross Perot.

And one of the things Ross Perot created was what we call SAS, the software concept, he told IBM when they fired him, effectively fired him because he had earned a full year's limited commission in his first month of the year, and they wouldn't allow him to keep working because he might make more than a top officer. He said to them, I'm leaving, but you guys really ought to start thinking about selling a service instead of just selling computers.

And then they didn't do it. So he went out and formed EDS. They had the concept of SAS, carried him through EDS and then later Perot Systems. And it's now a $250 billion industry. It's an enduring long term vision. Most. But principles and culture can be forever useful. In the book of Rick Waddell at Northern Trust, call it retro vision, a kind of vision that looks backward to find the principles or the culture that established and built the organization, adapting them to present situations and then carrying them forward. Principles and culture can be meaningful, and they can last.

Anita Brick: Will you talk about that? They don't always last. Another executive MBA student asked the question, what are a couple of signs that a vision may be expiring? Those things often invisible? And how do you make them visible so that you can change the vision if it is expiring?

Lloyd Shefsky: Well, in my second book, invent, Reinvent, thrive, you have to see opportunities, challenges, competition, regulation, all kinds of things. So you do have to stay alert. People do what I call trend patterned vision where they reach out to the future. In a sense, I don't mean they really go to the future, but they reach out to see where things are trending, where they're moving, and in what direction and pace, so that hopefully they can gear their businesses to intersect that at the right point.

Anita Brick: Interesting. You know, there's an alum who figured out that there is a new vision required. And she said, I'm in a turnaround situation and our old vision doesn't work today. How can a leader create and sell a new vision without firing the team who are aligned to the old vision and having to start all over again?

Lloyd Shefsky: So first, let me answer that by saying the answer isn't always the way she wants it to be, sometimes totally changing and firing and everything is all that can be done. Sometimes it just can't continue the way it is because the world has changed or their world has changed. The word family is an example of that. They just couldn't possibly keep running the Blackhawk.

They were losing money hand over fist. They couldn't continue it. Rocky words. He had to make a serious decision to change everything that he planned on in the past. Sometimes you just have to do it and sometimes firing the team, which I think was the phrase you just used there, means more than what we think of as the team.

You know, we think of the team as employees. Sometimes it means buying out shareholders. Sometimes there are shareholders who don't want the risk, don't want to put up the capital or stop getting the dividends or distributions or whatever, and you have to buy them out in order to be able to do what you want to do. And consensus is building.

It's so important if you're going to do it, especially in a turnaround situation, if you're going to do something that changes dramatically the vision of the company, you know, the old things of inclusiveness, transparency, actual or perceived fairness, things like that. But you also have to start educating the people and working with the people to train them. Very few people understand the business called Underwriters Laboratories.

It happens to be a not for profit. That's under a quarter, 150 years old. They ran into a problem. They're not for profit. No shareholder can profit from it. That doesn't mean that the company doesn't have to make a profit. They have to make enough money to make things wrong, otherwise they go out of business. Well, you will not be making enough money to keep running, and they had to bring in a new guy, Keith Williams, to fix that.

And he understood immediately the value of the old culture that had to be retained, the value of the people who were very talented and skilled at what they did that had to be retained. But somehow this business model had to be fixed. And the way he did it was by running training and education programs. He sent out weekly memos to everyone, everyone in the company, and they were all over the world.

And then once a month they would have the CFO, together with Keith, run a little seminar in the cafeteria, and they would transmit it all over the world to all their employees. They were giving them information about operations, things like that. But the real crux of what they were doing was teaching them the culture that had to be reinstituted. It was a turnaround situation of sorts, where the education and retraining became fundamental, but it was retraining in the culture and the business model, not retraining in the particular mechanical or electrical skills that the engineers had. They were almost all engineers.

Anita Brick: I thought that was a very interesting story because they had a monopoly for a long time. It's very easy to become complacent. What are some signs? Sometimes you don't identify them till it's too late. Are there signs or checkpoints to make sure that complacency is not taking over? And then some other competitor comes in and you're.

Lloyd Shefsky: Gone when you don't have luxury of time, when you don't have the time to do things carefully and you have to push things out the door, the whole situation changes. And you used a polite word. I'm going to call it arrogance. It's not just complacency, it's arrogance. It builds into the system, usually from the top, but that arrogance that says we're so good nobody can beat us does move down the chain, even all the way down the chain, as we saw in the car companies in the 60s, 70s and 80s, American car companies, it moved down the chain to the Assembly line.

That arrogance that says we're the best nobody can touch us is the first sign. Now, if the leader is arrogant, he may not or she may not be able to see down to the bottom that there's arrogance embedded in the company, because guess where it came from? There usually are boards of directors or others who can see that and can do a good job. It was the board of directors of underwriter Laboratory who saw that a change had to be made and brought in Keith Williams. Sometimes arrogance carries on to the point of destruction. If you get arrogant too early, bad things happen early.

Anita Brick: Got it so they could switch gears. I was fascinated by the whole story and obviously this weekend student was talking about the USA network and Kay, who came from a really eclectic and interesting background, created a very powerful vision. So this weekend students asked Kay, who created a powerful vision for the USA network, not reap the financial rewards. How can someone create a powerful future vision and benefit financially?

Lloyd Shefsky: Let me, if I may, first explain to the listeners who k is K? Couple of them was a woman who knew a little bit about TV because she had work, did an extracurricular activity at the University of Wisconsin-Madison, and then went to England on vacation. He actually but heard a lecture. Mr. Clarke, who talked to her about the geosynchronous satellite world, which was brand new at that time.

The light bulb went off, if you will, and she saw the vision of how that could be tied in with TV to get over the natural limitations of antennas as they existed. Then she decided, if you could use this satellite concept, you could bounce up and down and have vision around the world. So that was who she was.

And she found this USA network. As you mentioned, no, USA network actually was founded before she got there under a different name, but she recreated it with a whole new vision of hers. Your students question really goes to the fact that you didn't get the financial rewards. Now nobody's holding a charity for okay, she did okay. She just didn't do anywhere near as well as she should have or would have today.

She was a victim of those times when women weren't being given ownership and big companies, they weren't given prominent positions. They really were treated like second class citizens in corporate America. She had a choice, in her view, at that time. And it's very difficult for me or even for you to put yourself back in her shoes back then and say when you have a choice, you could fight for a piece of the action or stock options, whatever.

But if you did fight, you might be fired, and then your vision's worth nothing. She had that choice and she made a choice, and she's content with it. Part of that is she was so passionate about her vision, she was quite willing to sacrifice to get that. And everybody has to deal with that decision in some way. I mean, even if you're on a level playing field in every sense of the word, you still have people who just naturally are trying to take advantage of you.

That doesn't mean they're necessarily trying to do it immorally. They're trying to get the best package or deal they can for themselves. And if you're on the other side of the table, that's what business is all about. So financiers, partners, others trying to take advantage of you means you have to determine what your focus is, what matters most to you, and what's best for you. At that point.

Anita Brick: It was interesting. He broke a lot of rules. From what I read in the book. She was a pretty gutsy negotiator. She brought together a lot of different pieces. They weren't traditionally put together, but she brought them together. The MBA student said, I'm a big believer that you can learn from multiple functions, combine them and leverage them into a function where what you've learned is new and innovative. How can a person position this information, perspective, and insights for greater influence and profit?

Lloyd Shefsky: Your student said. Multiple functions. I'd like to call it multiple disciplines.

Anita Brick: Okay. Fair enough. Okay.

Lloyd Shefsky: Complements. Of course. I mentioned already that she took two areas of science in TV science, which she understood, and synchronous satellite science, which she learned she had to go back to school. In fact, she couldn't go back to the University of Wisconsin. They didn't teach it. So she went to Michigan State and got a master's in that subject. So she brought two totally diverse disciplines and synchronized them, if you will, to the point that it became very valuable. That's an extreme example. And you're right, she was not just a good negotiator. She was gutsy. I mean, she was. Yeah.

Anita Brick: Oh, yeah.

Lloyd Shefsky: She went up against one of the great negotiators of our time. When you're Louis Kuhn, the commissioner of baseball and formerly a top partner, Willkie fires Gallagher in New York. You know how to negotiate. And she went up against him, really? In a short conversation on the phone after he had threatened to sue her and destroy her, a second conversation by phone, she said the magic word she negotiated with him, which he loved.

And there was silence. And then he said, be at my office in the morning. And they negotiated what turned out to be a contract for all of Major League Baseball. Now here she was, ready to go out of business, and an hour later, she's got an appointment to go meet the commissioner. Gutsy, good negotiator. She just instinctively rehab that stuff. Some people are better at negotiating than others.

Anita Brick: Yeah, let's talk about that. Bringing these multiple disciplines together to create a greater whole and then have a position yourself to capitalize on that.

Lloyd Shefsky: So Rocky Wirtz knew that something was needed at the Blackhawks, even though he was kept out of running the Blackhawks. His brother and father ran the Blackhawks, and they literally shunned him and kept him away from it. And he knew that the Blackhawks needed marketing. So he went to Kellogg for an MBA and learned marketing. They still wouldn't let him come near the Blackhawks, so he applied the marketing to their billion dollar plus business and learned a lot.

He realized there was a knack at running a sports team and a separate knack of marketing, and that they could be brought together. As he observed other sports teams. Little pieces of that started to come into his head and he put the pieces together. And, for example, he saw that the Cubs I know now we think of the Cubs as the World Series Cubs.

But when he was looking at this ten years ago, he looked at the Cubs and said, 100 year loser. And yet they're profitable every year. So he went for the CEO of the Cubs organization and John McDonough and drew him over to the Blackhawks because he felt he was obviously a great leader of an organization that had no investment players and all the other things that make winners.

He wanted him to come with the Blackhawks and he sold them on it. He had a delineation. He thought his father and brother were thinking below the line, and that marketing would think above the line, and that he wanted to turn the organization upside down and focus on the revenue. And he needed somebody who understood how to do that.

And then the other example is U.P.S.. The CEO came in and they had been working for ten years or more on a concept that was very important. It was a computerized methodology, you know, algorithmic based, to determine the route that a driver takes every day. Now that some mundane or fundamental drivers make about 125 stops a day, if you are going somewhere and you're a minute or two late, you may not be happy, but you're not upset.

If a driver has 125 stops and he's two minutes late at each one, that's the end of his day. So it became very important for them to compute how these guys moved around. The problem was there was not enough technology to deal with the way they wanted to solve it. There was no big data cruncher available. And what he saw David out and he saw was the trend of where the computer world was going and where he had to get it to and where they would intersect. So he did that using multiple disciplines.

Anita Brick: Interesting. Do you have time for a couple more questions? Sure. Okay, good. I think this is a pretty universal question. Are people who want to make a transition from one industry to another weekend? Students said, you talk about being defined by your industry, but that you may have skills and experiences that transcend the industry. What advice would you have on how to communicate your value to another industry?

Lloyd Shefsky: Great question. Let me start with what it is, and then I'll come back to how let me use Bob Walter as an example. Now, Bob Walter created what's known as Cardinal Health, the biggest distributor of health care products all over the country. That isn't how he started the company. He started a company as Cardinal Foods. He distributed food to grocery stores.

Most people who are in the food distribution or grocery distribution business think of themselves in the food or grocery distribution business. So they're in the food or grocery business. If you want to expand, you buy a food company or a grocery company. He ran up against a wall. There were fewer and fewer opportunities to buy these companies. The roll up of the industry had pretty much passed him by.

So with the opportunities limited, he decided to think about what else could be done. His vision, which was an introspective vision, if you will, and he didn't really think about it. It came automatically to him. But he had that introspection, which was very important. He said, I'm not in the food or grocery business. I'm in the distribution business.

I've developed a great way of distributing. So he looked at what else he could distribute, and he looked at things like Coors beer and all kinds of other things, none of which totally appeal to him until he looked at the healthcare industry and realized this was one of the biggest growth industries in the country, in the world, actually, and that he could be a major player in that.

So understanding what you are can be important. Now let's look at how you get there. In the example I'd like to use there is Tom Steinberg. He was the founder of staples. His prior job was as an officer of Jewel of the grocery chain. He had no knowledge about the office supply products. You know, he was a customer, of course, that actually precipitated his move into it when he realized that they weren't very good at satisfying customers' needs.

So he decided he had to go out and learn about it. He had to learn what the industry was about, what the customers wanted. He did just that. He went out and interviewed people in the industry, interviewed some major companies in the industry, some of whom were honest with him and made him realize there might be a need for what he had in mind, some of whom lied to him outright, lied to them, probably to protect themselves against what could be a major disruption or intrusion into their industry.

And that didn't satisfy him. He had to know more. So he called up a lawyer friend in New York and met with him and told him what he was thinking about and said, how much do you spend per lawyer? How much do you spend on office supplies? And he said, I don't have a clue. Now, this is 30, 40 years ago before computerized law firms.

So the guy calls in the office manager and says, how much do we spend? She said, I don't know. And she gave me a number, but it was a gas. It was obviously a gas. Tom asked if she could check more carefully, and she did, and he came back a week or two later and she told him she was way off.

It was multiples of what she had thought. And that became a serious number, a number big enough that they could hire three more lawyers for the differential. And he asked the lawyer, well, if I told you that I could cut your cost to a fraction, but all you'd have to do is send a guy in a car over to my store and pick up the stuff.

Would you do it? And he said, of course I would. And that was it. So he started staples. If he had gone back to the industry people and asked them the questions that he asked the lawyer, he'd have gotten totally different answers. They didn't even know their own industry. Part of what you have to do is great homework.

Tom did great homework. Homework is when you get out of school and nobody gives you the assignment. Nobody tells you what to do, nobody tells you what resources to use or anything else. And you've got to go do it all on your own. That's real homework. And when you get to the point that you can do real homework, then maybe you can figure out not just defining, but transcending your industry, because the industry should contain you. You have skills and you should be able to move on on your own.

Anita Brick: In part, what he did before he founded staples was to find out what the need was and find out where the value could be, or if there was additional value that could be created. It seems like that's the same thing that a person would need if they were starting a company, or they were trying to switch careers.

Lloyd Shefsky: Exactly. But there's an adjunct to what you just said. You said find out. And he did indeed find out. The adjunct is the people in the industry, the customers. They didn't even know the facts that he had to find out.

Anita Brick: Right, right, right.

Lloyd Shefsky: That just asking questions, that's not enough. It's really putting situations in front of people. And it's an interviewing process that gets to the facts that the interviewees don't even know.

Anita Brick: Good point. When you think about it. What are three things that you would advise someone who wants to create a vision and yet be open to breaking the rules of that vision to make it sustainable?

Lloyd Shefsky: I don't want to be repetitive, but one of the things is just what we were talking about with Tom Steinberg, he has to do your homework and you have to make sure you understand what it is you're talking about. There are millions of visions in this world every day. The first thing you see, as you just mentioned a little while ago, is you see somebody trying to do something and it's not being done as efficiently or cost effectively or whatever as you'd like it to be done or they'd like it to be done.

Need is the first thing you have to deal with. Then you have to figure out whether it's feasible. You know you can have a great vision, but if it's not feasible, what good is it? And let me go to Tony through a lot of that. He had a vision that Americans, if given the opportunity, would dream of higher quality wine, and would prefer higher quality wine.

Well, it's a great vision. Except why would you spend $15 a bottle when you could spend peanuts? He had to teach the needs of the market, so he went to restaurants. He decided that he would create a wine list, teach the people in the restaurants how to use those wine lists to sell more and better wines, because of course they wanted to profit too.

And he built the demand and the need. And that's a second thing that people should think about. Sometimes you literally have to create that demand. And then the other thing is be careful. If you're the guy who's coming with the new idea, you want to be sure that you don't become complacent by saying, well, they're the biggest and best. They must be right.

Anita Brick: And have the courage to break your own rules, if that's what makes sense.

Lloyd Shefsky: One of the things I found uses the word courage, and it is courage, but it's also passion. Somebody sufficiently passionate about their new idea, they don't even feel they're courageous. They just feel this is the way I have to go.

Anita Brick: Really, really enjoyed the book a lot. Visionaries Are Made Not Warren was a great read and I really appreciate that you've made time for us today. Clearly you have accomplished so much to date in your life. I'm sure there's more to come and for your willingness to share your insights and wisdom with us. So I'm very thankful. So thank you very, very much, Lloyd.

Lloyd Shefsky: Thank you. And it was a pleasure to be here. And like the good work you're doing.

Anita Brick: Thank you. And thank you all for listening. This is Anita Brick with CareerCast at Chicago Booth. Keep advancing.